BLBG: Pound Climbs to 21-Month High Versus Euro as Construction Jumps
The pound rose to a 21-month high versus the euro after a report showing U.K. construction growth accelerated in June added to signs of strength in the economy.
Sterling appreciated to the strongest level against the dollar in more than five years as a separate report showed an index of housing activity increased this month. The data support the case for the Bank of England to consider raising interest rates this year after Governor Mark Carney has said the time to normalize them is “edging closer.” The European Central Bank lowered interest rates last month to stave off the threat of deflation. U.K. government bonds were little changed.
“We continue to favor euro-sterling lower,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “Data divergence between the U.K. and the euro area has been very supportive of this view. There’s already been some pricing for a fourth-quarter rate hike and if the data remains on track, we’re likely to see sterling continue to rise.”
The pound appreciated 0.2 percent to 79.60 pence per euro at 11:48 a.m. London time after reaching 79.51 pence, the strongest level since October 2012. Sterling rose 0.1 percent to $1.7166 and touched $1.7177, the highest since October 2008.
With unemployment at a five-year low, house prices soaring and the economy headed for the strongest growth of any Group of Seven nation this year, investors are betting the BOE will raise the benchmark rate from the record low set in 2009 by February, Sonia derivatives contracts show. The central bank will announce this month’s policy decision on July 10.
ECB Policy
ECB officials led by President Mario Draghi will leave monetary policy unchanged tomorrow, according to analysts in a Bloomberg News survey. The Frankfurt-based central bank unveiled unprecedented stimulus measures at its previous meeting on June 5, including negative deposit rates that tend to weaken a currency.
Markit Economics said its construction index, based on a survey of purchasing managers, increased to 62.6 from 60 in May. That’s the highest since February and compares with economists’ forecast in a Bloomberg survey for a decline to 59.8. The index has been above the 50 level that indicates expansion for more than a year.
An index of housing activity increased to 66.6 in June from 62.7 in May, Markit said. That’s the highest since the gauge rose to 67.3 in January, which was the strongest reading in more than a decade. Commercial building grew the fastest in five months.
House Prices
A separate report from the Nationwide Building Society showed home prices in London jumped the most in 27 years in the three months through June.
London house prices surged 7.6 percent in the second quarter from the previous three months, more than double the U.K. average of 2.9 percent, the lender said. National prices climbed 1 percent in June from May, the 14th month of increases, to an average 188,903 pounds, Nationwide said. That took the annual gain to 11.8 percent, the fastest year-on-year increase since January 2005.
The pound strengthened 9.9 percent in the past 12 months, the best performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 1.3 percent, while the dollar weakened 4.3 percent.
Benchmark 10-year gilts yielded 2.69 percent. The price of the 2.25 percent bond due in September 2023 was 96.42.
Gilts returned 3.2 percent this year through yesterday, Bloomberg World Bond Indexes show. German securities earned 4.8 percent and Treasuries gained 3.1 percent.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Mark McCord
